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VIENNA, Austria (CNN) -- Iran has broken the seals on equipment at an atomic processing facility amid Western fears Tehran could use its technology to build a nuclear bomb.

The fact that International Atomic Energy Agency (IAEA) seals had been in place until Wednesday indicates the equipment at the nuclear plant had not been used up to now.

Removal of the seals means the uranium conversion plant is now capable of being fully operational, a state-run news agency reported.

Meanwhile, Iran's supreme leader, Ayatollah Ali Khamenei, issued a fatwa declaring the "production, stockpiling and use of nuclear weapons" against the beliefs of Islam.

Under immense international pressure, Iran voluntarily suspended its nuclear program in October 2003. Earlier this week, the Islamic Republic rejected a European proposal to end a stalemate over its nuclear aspirations and announced it would resume conversion operations.

U.S. and other Western nations fear that full operations at the plant could lead to the development of nuclear weapons. Tehran says its atomic work is for peaceful purposes only.

Mohammad Faidi, deputy director of international affairs of Iran's Atomic Energy Organization, said a U.N. representative was present when the seals were removed, the agency reported.

A spokesman for the IAEA said the U.N.'s nuclear watchdog would have preferred Iran not remove the seals and restart full operations.

But Mark Gwozdecky said the plant at Isfahan, located 410 kilometers (255 miles) south of Tehran, "is fully monitored by the IAEA" and "is not a uranium enrichment plant."

"Their uranium enrichment plant in Natanz remains frozen, and they have indicated it will remain that way," he said. "This plant (Isfahan) produces feed material that could one day be used in enrichment."

Still, he said, Iran's decision "isn't particularly helpful."

"This is a process of confidence building," he said. "Iran built a nuclear program for 18 years and concealed it from the international community.

"The international community, through our board of governors, has asked Iran to put on hold activities that are not urgently needed right now and allow this dialogue ... as well as allow the inspectors to finish their job."

In Vienna, the IAEA's board of governors postponed a planned meeting to give delegates more time to hammer out a resolution on the issue.

The agency was expected to press Iran to reverse its decision to resume its uranium conversion program at Isfahan.

CNN's Walter Rodgers said the postponement "indicates a lack of unanimity on how to deal with the Iranians."

Iran restarted parts of the uranium conversion process at Isfahan Monday without breaking any U.N. seals at the plant. (Full story)

But in order to run the whole plant -- which converts uranium concentrate into a gas that can then be enriched into reactor or bomb fuel -- seals had to be removed.

Iran has insisted it has the right to have a nuclear fuel recycling program in its quest for greater reliance on nuclear energy.

Western nations, however, fear this same uranium enrichment program could also be used by Iran as a front to develop atomic weapons.

The IAEA board met Tuesday to receive a report from its monitors on the restarting of the fuel conversion at Isfahan.

The agency indicated its board would ask Iran to rescind its decision on resuming its uranium conversion program. If Iran declines, it could be referred to the U.N. Security Council for sanctions.

Iran agreed in November to suspend the production of enriched uranium amid heavy international pressure. (Full story)

In a statement read late Tuesday at the IAEA meeting, Iran's leader, Ayatollah Ali Khamenei, issued a fatwa, or religious legal ruling, saying "production, stockpiling and use of nuclear weapons are forbidden under Islam and that the Islamic Republic of Iran shall never acquire these weapons."

"The leadership of Iran has pledged at the highest level that Iran will remain a non-nuclear-weapon state party to the (Nuclear Nonproliferation Treaty) and has placed the entire scope of its nuclear activities under IAEA safeguards and additional protocol, in addition to undertaking voluntary transparency measures with the agency that have even gone beyond the requirements of the agency's safeguard system," Khamenei said in the statement.

According to Iran's state news agency, new Iranian President Mahmoud Ahmadinejad told U.N. Secretary-General Kofi Annan in a phone call that Iran was willing to continue negotiations on its nuclear program.

But Ahmadinejad rejected a European Union proposal to settle the dispute as "an affront to the Iranian nation."

'Positive sign' amid suspicion

U.S. President George W. Bush, at his ranch in Texas, said Ahmadinejad's willingness to come back to the table was "a positive sign" but warned that Washington was "deeply suspicious" of Iran's goals.

Last week, EU negotiators offered Iran a package of proposals for long-term support of its civilian nuclear program in exchange for guarantees not to develop atomic weapons. (Full story)

A government spokesman said Saturday that Iran would reject the offer. (Full story)

Cyrus Naseri, Iran's delegate to the IAEA, told reporters Tuesday that an Iranian settlement proposal was still on the table for European consideration.

IAEA Director-General Mohamed ElBaradei said he hoped the dispute between Iran and the EU was "simply a hiccup, not a permanent rupture." He urged all parties to exercise maximum restraint.

As the 35-member IAEA board met, Russia joined other European nations in calling on Iran to resume suspension of the program.

"It would be a wise decision to immediately stop the work begun on uranium conversion and continue Iran's close cooperation with the IAEA in removing the questions that still remain about the Iranian nuclear program," Russian Foreign Ministry spokesman Mikhail Kamynin told a news conference.

Russia, a member of IAEA board, signed a deal with Iran in February to transfer nuclear fuel to Iran's $800 million power plant reactor in the southern city of Bushehr and move the spent fuel back to Russia.

Russian President Vladimir Putin has said he is convinced Iran is not developing nuclear weapons. (Full story)

Britain, France and Germany -- the so-called EU-3 -- have led attempts to negotiate a solution with Iran. The United States, which has no diplomatic relations with Iran, has remained largely in the background.

"Our strategy has been all along to work with Germany, France and Great Britain in terms of sending a strong signal and message to Iran," Bush said Tuesday.

"Today it looked like the new Iranian leader has heard that message," said Bush, who once branded Iran as part of an "axis of evil" along with North Korea and Saddam Hussein's Iraq.

The bottom line is that "we don't want the Iranians to have nuclear weapons," Bush said.

Iran's Naseri, speaking in Vienna, scoffed at the U.S. insistence that his country not have nuclear weapons.

"The United States is the sole nuclear weapons state which had the guts to drop the bomb and kill and maim and turn into ashes millions in a split second," he said, referring to the atomic bombs that destroyed two cities in Japan and helped end World War II 60 years ago this month. (Full story)

"The United States is in no position whatsoever to tell anyone or preach what they should or should not with their nuclear program."

Under the Nuclear Nonproliferation Treaty, signatory nations -- which include Iran -- are allowed to develop nuclear power with monitoring by the IAEA.

The agency says it was making progress but that Iran's past lack of candor about its program had left some doubt about its current work.

CNN Senior International Correspondent Walter Rodgers contributed to this report